GBP/USD Forecast: Potential Range of 1.30-1.40 by 2025
According to DBS’ FX analysts Philip Wee and Chang Wei Liang, the GBP/USD pair has the potential to trade within a higher range of 1.30-1.40 through 2025.
Factors Driving the Forecast
- BoE vs. Fed Interest Rates: The 10-year yield differential between UK Gilts and US Treasuries turned positive in August, indicating that the Bank of England (BoE) is likely to reduce interest rates at a slower pace compared to the Federal Reserve (Fed).
- UK Economic Recovery: The IMF noted that the UK economy is recovering faster than expected after a mild recession in 2023.
- Political Stability: The Labour Party’s decisive victory in the July snap elections is expected to bring more political stability, following years of volatility under Conservative leadership. Prime Minister Keir Starmer has ruled out rejoining the EU but aims to strengthen the UK’s post-Brexit relationship with the EU.
Analysis of the Forecast
The forecast for the GBP/USD pair to potentially trade within a range of 1.30-1.40 by 2025 is based on several key factors that are likely to impact the currency pair’s performance in the coming years. Here’s a breakdown of the analysis:
- Interest Rate Differentials: The positive 10-year yield differential between UK Gilts and US Treasuries suggests that the BoE will adopt a more gradual approach to reducing interest rates compared to the Fed. This could lead to a stronger GBP relative to the USD.
- Economic Recovery: The faster-than-expected recovery of the UK economy following the 2023 recession is a positive sign for the GBP. Strong economic performance could attract foreign investors and boost the value of the currency.
- Political Stability: The Labour Party’s victory and Prime Minister Starmer’s commitment to rebuilding and strengthening post-Brexit relations with the EU are likely to bring more stability to the UK. Political stability is crucial for investor confidence and could support the GBP’s strength.
Overall, the forecast for the GBP/USD pair to trade within a higher range of 1.30-1.40 by 2025 reflects the combined impact of interest rate differentials, economic recovery, and political stability on the currency pair’s performance.